S.Korea pension service to stop forex hedging from 2019

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SEOUL, Dec 24 (Reuters) - South Korea’s National Pension Service will stop currency hedging on its overseas bond investments from 2019 after hedging is reduced between 2017 and 2018, the welfare ministry said on Thursday.

The world’s third-largest pension fund, with assets amounting to 500.2 trillion won ($427.34 billion) as of the end of September, has already stopped currency hedging on other investments from this year, it said in a statement.

The proportion of currency hedging will first be reduced to 50 percent of its overseas bond investments by the end of 2017 from the current 100 percent and then down to zero by the end of 2018, it said.

Currently the pension service has to sell currency forwards or swaps to hedge against its foreign-currency purchases for investment in overseas bonds.

The pension service will instead try to minimise currency risks by managing the make-up of currencies in its investment in an effective manner, the ministry overseeing the service said in a statement, without elaborating.

The pension service invested 21.7 trillion won in overseas bonds as of the end of September, representing 4.3 percent of its total investment, its data showed. That compares with 265.8 trillion won or 53.1 percent invested in domestic stocks.